John Gokongwei delivered this speech last Oct. 24, 2008 during the Columbia Business School Pan-Asian Reunion.
Good afternoon ladies and gentlemen.
I have been invited to share my thoughts on Asian Conglomerates and the global economy, and why they have been successful in many ways. The best way I can share my thoughts with you is to recall some of my own experiences in starting and growing JG Summit Holdings. Embedded in these experiences are some lessons learned in making businesses successful not just in their domestic markets, but also in a more international arena of competition.
I believe that the first element of successful conglomerates is the ability to sustain the entrepreneurial passion of their founders. A common thread that I have observed is that many Asian conglomerates were started by immigrants who engaged in business as a matter of survival. Entrepreneurial skill was not an option; it was a necessity!
In our case, I was the eldest son of a Chinese businessman who settled in the city of Cebu in the Visayan Islands. While our family achieved some prosperity before the last world war, that all changed when my Father suddenly died of an illness and when the war put everyone on equal footing.
I started working at the age of 13, selling soap, candles and thread a small stall at the city market. My small trading business grew into a vibrant trade between my hometown in Cebu and Manila. Eventually, through hard work, frugality and the help of all my siblings, we expanded this to trading between the Philippines and the United States.
This entrepreneurial drive and desire to survive and thrive got us into manufacturing. It became clear to me that we would not grow very much just importing goods. With this in mind we set up a corn starch manufacturing concern called Universal Corn Products which eventually evolved into what is now our largest business with a Pan-Asian footprint – Universal Robina Corporation.
Through Universal Robina we have achieved our present position as the Philippines largest and most dominant snacks and beverage player, and one of the fastest growing around the ASEAN region. Other businesses were spawned by the robust cash profits of our branded food business and over time we forayed into a very diverse set of businesses.
These businesses became the foundation of JG Summit Holdings, Inc., a holding company we formed in 1990 which went public in 1993. Today, we are engaged in 8 major businesses: Food, Real Estate, Telecommunications, Airlines, Petrochemicals, Banking and Financial Services, Retail, and Publishing. We are also increasing our presence in other markets in Southeast Asia and Greater China.
While these businesses seem diverse and unrelated, all of them actually have a common thread – they are all large and growing consumer-oriented or consumption driven industries; and they all require innovative entrepreneurial skill, and disciplined operating management.
The second element of success that I have observed from Asian conglomerates is their ability to access funds and channel capital into industries that developed into globally competitive businesses over time. I have observed two categories of conglomerates in the region and they follow very distinct geographic and industry lines.
First, in North Asia we have the keiretsus of Japan and the chaebols of South Korea, and perhaps some Taiwanese industrial groups, that are engaged in capital-intensive and well protected heavy industries like steel, petrochemicals, electronics, automobiles, ship-building, engineering and construction.
Secondly, in Southeast Asia we have the large family-owned and managed conglomerates that got involved in light manufacturing, trade, real estate, telecoms, airlines and other service industries.
The first group was well-capitalized and well protected such that they were able to build their capabilities to penetrate and compete in global markets. In many respects they were aided with tariff protection and direct subsidies until they were able to transition to directly accessing the international capital markets themselves.
The second group did not require (and was not given) as much access to low-cost capital and government protection as the first group, and they developed their competitiveness by achieving scale via their participation in a wide variety of industries (as opposed to just focusing on just a few related ones) that enjoyed a broad consumer demand base. Many of our businesses in JG Summit follow the patterns of this second category of Asian conglomerates.
We could not just focus on just one industry because the only way for us to get bigger was to get involved in other businesses that were also driven by consumer spending – like real estate and retail. Eventually, by continually plowing back our profits into these new businesses we were able to get into telecoms and airlines and petrochemicals, which became accessible to us either because the government deregulated them and handed out franchises, or because government liberalized international capital sources which gave Philippine companies greater access to the international capital markets for lower cost funding.
The third element of success I have observed is that successful Asian conglomerates have learned to maintain strong family or core shareholder control, even as they broadened their investor base and professionalized their management organization. Before the last world war, the dominant civil leadership came from colonial powers. They basically defined how businesses were organized and developed. After the war, with the departure of the colonial powers from most of Asia, entrepreneurial families started to define how businesses were formed and developed, and this gave birth to the form of conglomerate that we see successful in most of Asia today.
The strong family or core shareholder control enables these large organizations to sustain the original entrepreneurial effectiveness of the founders, while imbibing the experience, science and efficiency of professionally trained managers. In JG Summit, while our oversight boards include independent directors who represent the interest of the broader base of our minority shareholders, there are a larger number of family members from both the older as well as the younger generations. Operating management on the other hand, is dominated by professional managers who are experts and seasoned in their respective businesses.
By the way, professionalism is not exclusive to those who are not family members. Over the years a family-run conglomerate will have to spawn and breed family members who are trained and educated in the disciplines of globally competitive management practices. This is something they cannot abdicate to non-family professionals.
Conversely, entrepreneurial skill cannot also just remain among family members. It is important to be very intentional about developing a culture of innovation and value-creation throughout the conglomerate so that non-family professionals will also be equally skilled in entrepreneurship. We make this very deliberate in JG Summit.
We have sent both family and non family members of management to the best business and management schools of the world; and we have also allowed our professional managers enough entrepreneurial space for calculated risk-taking in order for them to develop the same instincts about creating value that has served our group well over the years, and across so many different businesses.
These I believe are the key ingredients of a successful Asian conglomerate – 1) the founders’ entrepreneurial passion, 2) capital access and economies of scale, and 3) continuing professionalism anchored on a strong entrepreneurial culture.
(See the Other Speeches of John Gokongwei)